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One of the most fundamental aspects of any insurance policy is proper identification of who is actually insured. This often isn’t as clear as it might seem and mistakes can be costly, so here’s a quick walk through some basics.
There are four different types of Insureds, each with different rights and responsibilities under a policy:
The First Named Insured
This is the primary entity or person covered by the policy. The first Named Insured can be thought of as the owner of the policy, with all the rights and responsibilities that go with that. Rights include the ability to add to, delete from, amend or cancel the policy, receive all notices including cancellation or nonrenewal notices, receive any return premiums, and make claims; responsibilities include accurately and honestly completing applications, paying premiums timely, and giving proper notice of claims in accordance with policy conditions. There may often be additional named insureds, but only the one insured can be the first named insured, and have these rights and responsibilities.
Additional Named Insureds
Depending on the policyholder’s structure there may be other related, owned or affiliated entities that need to be covered. Additional Named Insureds can be individuals, corporations, limited liability companies (LLC), partnerships, trusts, etc., but there must always be some affiliation or commonality with the first named insured; insurance companies will have their own underwriting guidelines on combinability based on shared ownership or commonality of interests. These will be specifically listed and shown on the policy as additional Named Insureds. They will be covered by the policy to the extent of their interests, but they do not have the same rights and responsibilities as the first Named Insured; their rights consist primarily of the ability to file claims under the policy.
Defined Unnamed Insureds
Policies also typically include otherwise unnamed persons or entities, defined by position or relationship, as insureds other than the Named Insured(s). For example, Section II of the standard Commercial General Liability form is “Who Is Insured”, and adds by definition (but not name) spouses, LLC members, officers, employees, real estate managers and others to the policy as Insureds. Don’t assume this list will be the same with all policies; there are wide variations between types of insurance and policy forms. While these other defined but unnamed insureds are covered by the policy, like additional named insureds they don’t have the same rights and responsibilities as the first Named Insured.
The last and lowest tier of insureds, Additional Insureds enjoy few rights on a policy other than the most important one, the right to make a claim for coverage for a loss. However, that coverage can be subject to specific conditions, limitations or exclusions that only apply to additional insureds. Of specific importance, additional insureds usually have no rights to notice of change, cancellation or non-renewal of a policy from the insurance company, even though it is very common to see that requirement.
All this is not as complicated as it might seem at first blush. The first Named Insured applies for, owns and controls the policy, and pays for it. Additional Named Insureds are those other persons or entities that are owned, controlled or affiliated with the First Named Insured and which are covered almost equally in the policy; there must always be some defined relationship with the first named insured for additional named insureds to be added to a policy. Defined unnamed insureds are typically those that would be associated with the insured entity. Additional Insureds are those outside, unaffiliated entities that the named insured has in interest in including for coverage under the policy, but with limitations not applicable to other classes of insureds.
Common problems here include failure to list every person or entity that needs to be covered. For larger or more complex organizations, that could be a pretty long list, and underwriters will want to understand the relationship of each entity to the first Named Insured. Blanket Named Insured endorsements are sometime available, but must always be used with caution, since they may not extend to all types of entities that may need coverage.
Also often overlooked is the need to add newly acquired or formed entities to policies as Named Insureds; be alert to that need. Another common issue arises when an entity is shut down or divested; there is often a tendency to want to remove that name from a policy right away. Claims can roll in the door long after such an event; best to let those names stay on the policy for a while, perhaps as long as several years, to be sure of coverage. Remember, there is usually no premium charge to add or leave a name on a policy.
Ultimately, insurance policies only respond to protect persons or entities that are listed as Insureds. Getting the Insured correct is the basic first step required to have any potential for coverage to apply, and care must be taken to assure this is done right.